Household responses to escalating violence in Mexico

Despite catastrophic fallout from the Mexican drug war, headlines fail to capture the full cost to civilians. Using three waves of survey data on the same households, conducted between 2002 to 2012, we show that households adjusted both their consumption habits and altered their behaviour in response to increased homicide rates in their municipality. We demonstrate that higher murder rates are associated with households reducing expenditure on visible commodities and with individuals avoiding carrying valuables and going out at night. The spending changes occurred mainly for middle- and upper-income households, while the behavioural adjustments happened mainly in households that were poorer or headed by a female. Assuming that household behaviour was in equilibrium before the escalation in violence, these adjustments represent a non-obvious, but significant, welfare loss which should be considered in any account of the costs and benefits of the drug war.